The Internet revolution is alive and kicking and "has never missed a beat," proclaimed AOL Time Warner Inc. Co-Chief Operating Officer Bob Pittman in a relentlessly upbeat keynote speech delivered here Tuesday at the start of Internet World Fall.
With two-thirds of U.S. homes connected to the Internet, the medium has reached a critical mass, and companies can begin cashing in on the subscriber bases they've acquired, Pittman said. That's AOL Time Warner's growth strategy: Pittman deployed every hue in PowerPoint's palette to illustrate how the company plans to sell additional services and products to customers currently paying US$20 to $45 a month for Internet connections from America Online Inc. and AOL Time Warner's Road Runner cable modem service. Add in an array of new services -- for example, $20 for a monthly music subscription, $15 for games, $10 for interactive television, $35 for long-distance IP (Internet Protocol) telephony service -- and you can significantly increase the per-user revenue derived from your subscribers, Pittman said.
Even in financially-strapped times, consumers will pay for such services because they see them as enhancements of processes and products for which they're already accustomed to paying, Pittman said. In the near future, the Internet will move beyond the PC, and data connections will be as prevalent as phone jacks, he maintained. Companies can best capitalize on that ubiquity by embedding network functionality into devices with which consumers are already familiar, he argued. For example, a customer could replace his stereo with a device that looks like a typical CD player but also taps into an Internet connection to offer music from a vast online database of tunes -- for a monthly fee, of course.
Pittman never strayed from his prepared script and slide show during the speech, making no reference to last week's surprise announcement by AOL Time Warner Chief Executive Officer Gerald Levin that he'll retire in May 2002. Pittman also glossed over much of the gloom that's surrounded both the technology and media industries in 2001. The sharp decline in advertising spending -- which AOL Time Warner executives cited as a key factor behind lower-than-expected revenue in this year's second quarter and a widening net loss in the third -- is "one of those things that you don't worry about, because that's just the cycle," Pittman said. "The good news is that ad spending always comes back."
AOL's slowing subscriber base growth is also not a problem, according to Pittman, because the real money is in marketing to those subscribers. E-commerce is taking off, he said: AOL's user spending online has tripled since 1999.
"When you look at the statistics on consumer spending online, this doesn't look like a recession. Where the consumer is spending, the Internet revolution has never slowed," Pittman said. "Every other piece of the Internet (aside from advertising) is moving forward as if nothing bad were happening in the economy, and what other industry can you say that about?"
Meanwhile, the music industry is poised for a growth spurt like the one it enjoyed in the mid-1980s, when MTV and CDs enlivened the audience and drove sales to record highs, Pittman predicted. Twenty years ago, the music industry "was in the doldrums" -- much like the industry today, he said. "I think we're at exactly the same point now, and the Internet will be major promotional tool for the music industry. Electronic delivery of music will be the equivalent of CDs."
Attendee reaction to Pittman's speech was mixed, with some hailing his customer-centric approach and others questioning his bullish predictions.
"What he had to say was very customer-focused, and I think that's what you need to be," said Jon Kosoff, CRM (customer relationship management) manager at Jenny Craig Inc. in La Jolla, California. "Expectations from customers are higher, especially on the Web, and you need to be user-focused to be successful -- that's not groundbreaking, it's nothing new, but it's right."
Kosoff agreed with Pittman's assertion that despite the slow economy, business on the Net has not slumped. "I hate to say it, but Sept. 11 had the opposite effect on the Internet -- people are doing more shopping online."
Another audience member disagreed agreed with Pittman's upbeat premise that business on the Net hasn't been dragged down by the recession.
"I thought (the keynote) was pretty juvenile. Sure, home shopping on the Net is up a bit because people are afraid to go out and shop, but, in general, business sucks. The economy is doing badly," said Glenn Zagoren, president of Zagoren-Zozzora Inc. in New York, which operates PNLTV.com, a streaming media Web business aimed at government agencies. The generally bad economy is affecting all businesses, Zagoren noted. "I can't collect money that's owed me, and I've had projects on hold ever since Sept. 11th. I'm in the world-trade business, and Sept. 11th affected world trade."
"We're all here because we're optimistic in a certain sense, or we'd all be working at a bar in the Caribbean. ... I expect business to pick up in 2002. But I would have been interested to hear more about the problems facing AOL and what it is doing to solve them," he said.
(Marc Ferranti in New York contributed to this report.)